If no. control be exercised by govern ment or by some central body, over the issues of private banks, notes will be cir culated, not according to any fixed prin ciple, nor with reference to the ex chews, but to promote the business of banking. If too many should be in cir culation, the action of the foreign ex changes cannot be brought to bear upon many independent banks with sufficient force and distinctness, and the converti bility of all the paper-money in the country is consequently endangered. This is the danger which is sought to be averted by restrictions upon the issues of private banks, and by the gradual substitution of the notes of one issuing body for those of many. No interference with the business of banking would be justifiable, except for the protection of the public interests ; but the evils arising from the suspension of specie payments are so great, that every practicable precaution must he taken to avert it. It deranges all commercial transactions, it injures public credit, dis turbs prices, and suddenly withdraws the standard of value by which all existing obligations and all future bargains are to be adjusted. When notes are issued by one body only, a limitation of its issues, as already noticed, may sustain their value; but when many independent bodies are issuing notes, during a period of in convertibility, there is no principle at work to regulate or to limit their issues, and it is almost certain that their notes will not only be greatly depreciated, but also will be liable to constant fluctuations of value.
There are some political reasoners who have ascribed every commercial convul sion to an ill-regulated currency; while others deny its influence upon prices and upon the general arrangements of com merce. The opinions of both these par ties are probably extreme, and their facts somewhat exaggerated ; but the tem perate view taken by Mr. S. Jones Loyd may be adopted with less hesitation. He says, "The currency, in which all trans actions are adjusted, has the same refer ence to the healthy state of trade, which the atmosphere in which we all live has to the physical constitution of our bodies; irregularities and disorders may arise from a variety of causes, but the duration and virulence of them will materially depend upon the pure, healthy, and well regulated condition of the medium in which they exist. A well-managed cur rency cannot prevent the occurrence of periods of excitement and over-trading, nor of their necessary consequences— commercial pressure and distress; but it may tend very powerfully to diminish the frequency of their return, to restrain the suddenness of their outbreak, and to limit the extent of their mischief" (Remarks on the Management of the Circulation, 1840.) As yet such promissory notes only have been spoken of as are payable on de mand: but a few remarks may be added concerning promissory notes and bills of exchange payable at some period more or less distant. These are regarded by some as paper-money, and are said to form part of the general circulation ; but the essen tial distinction between them and paper money has been more than once noticed above. They do not discharge obliga tions, but are merely written engagements to discharge them at a future period : they are one of the many forms of credit, and as such are used as substitutes for money ; but they cannot be considered a part of the national currency. When transferred from one hand to another they I do not pass as money, but as the transfer of a debt, of which the payment is guaran teed by each endorser in suecession. It is true that they are among the most efficient agents for economising the use of money, and that they leave the oircu luting medium more free for other pur poses, in which payments are made in notes or specie. If this were not the
case the circulation of notes must be almost indefinitely increased in order to meet the various demands of commerce ; but this economy in the use of money makes a comparatively small circulation sufficient. It is this circulation, however, of which the relative scarcity or abun dance affects the prices of commodities and the foreign exchanges. The final settlement of a bill of exchange must be adjusted in the current money of the country. If money be dear, the acceptor exchanges more goods for it in order to meet the bill when it becomes due ; if money be relatively cheap, he makes a better bargain; but the bill of exchange itself is no more money than the goods which had been originally purchmed with it. Every bill of exchange when first drawn and accepted, and subse quently endorsed, represents, at each transfer, a distinct commercial transaction, of which the bill is the immediate result. The number and amount of bills of ex change in circulation cannot, therefore, be added to the currency in order to com pare the aggregate circulation with the aggregate amount of commodities ; for those commodities which are exchanged by means of bills may be set off against the value of other commodities represented by the bills, while the notes and specie taken together, may be compared with the aggregate of other transactions, added to the balances of accounts arising out of the final settlement of bills of exchange. It is undeniable that bills of exchange perform many of the functions of Money, and they are regarded as a part of the circulation by some high authorities in monetary matters ; but it appears to us that the balance of reason and of autho rity inclines to the other side and assigns to bills of exchange a distinct place as substitutes for currency instead of in cluding them as part of the currency itself. (See the Evidence upon this point before the Committee on Banks of Issue, 1840.) A similar question arises in reference to the monetary character to be assigned to banking deposits : are they currency or not ? The transfer of deposits pays debts and purchases commodities ; it per forms the functions of money, and so far would seem to be a part of the currency and to have an influence upon prices and upon the foreign exchanges. But it can not be contended that the whole of the deposits are currency, for a large portion of them is invested by the bankers ; and if every depositor were to call for his deposits at once, they could not be paid. Nor can the uninvested portion be pro perly called money; it is a form of credit which, like bills of exchange, economises the use of money and is a substitute for it, bat is not the thing itself. It bears so close a resemblance to currency that to assign to it a distinct character is a mat ter of some difficulty ; but still we are disposed to class all portions of banking deposits which are not actually held by the bankers in notes and specie, in the same category with bills of exchange, book-debts, and transfers in account. All these are modes of facilitating the ex change of commodities by a refined species of barter, without the intervention of any circulatinf medium. Each trans action is valued in the current medium of exchange, and final settlements of accounts are adjusted in money ; but the estimated value of the transaction itself cannot be reckoned as a part of the cis.